What is financial statement, its benefits, its uses and its types.

Definition=

Financial statements shows all the records of financial activities of the business or the company which explains the position of the business or the company.

Financial statements are that type of documents which shows all the details related to finance including debit details and credit details.

User Types=

Generally there are two type of users who require financial statements.

Internal users: Internal users involves members from inside the business for example these members includes Managers, Officers and Internal Auditors etc.

External users: External users involves users from outside the business. Which are not working members of the business as internal users are for example shareholders, Lenders, customers, etc.

Financial statement Benefits=

The main benefit of financial statements is that this provide financial data of the business which is useful for both internal and external users.

For internal users it is required because managers use it to make decision for business activities and internal auditors use it to examine frauds and errors which may changes the financial position of business.

For external users its main benefit is to know about financial position in order to know their return percentage whether their investment in shares in that business has been proved fruitful or not and it is also useful for those external users who are planning to invest in any business.

Growth of the business can be measured with the help of financial statements.

All the businesses prepare financial statements to manage their finance to know whether the business is in good condition or in bad condition which means whether it’s generating enough profit or generating loss.

Financial statements Uses and Types=

There are four types of financial statements

• Income statement uses to find out income of the business.
• Statement of financial position uses to find out the financial position of the business.
• Statement of cash flow explains the inflow and outflow of cash of the business.
• Statement of changes in equity explains the movement of equity like increase or decrease in share capital, dividend payments etc.

      However beside the above types there are also some other types which are widely used to analyze       financial statements by following ways:

• Classical financial statement= In this type certain characters of financial statement group together which results in meaningful subtotals and can be understand by readers having financial knowledge.
• Comparative financial statement= This type of statement helps the viewers and readers to examine financial information of the business of two years which shows comparison of last year financial statement and current year financial statement. It also helps to measure the trends and change in the business to know the business position better.
• Consolidated financial statement= It is used to get the knowledge and information of parent and subsidiary which also helps to know that these two companies are single unit and working together.